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Monday, December 18, 2017

Tanker segment overview by SSY

Simpson Spence & Young Shipbrokers (SSY) is continuing with the long tradition of half yearly reports started by JI Jacobs. The Volume 1 report for 2005 provides a comprehensive overview of the oil market and market segments. 

SSY forecasts Chinese oil demand to grow by about 6.3% in 2005. Crude imports will be taken both from West Africa and the Middle East, and more spot fixtures from West Africa to India for lower sulphur grades should add to tonne-mile demand for VLCCs. On the other end the American trend towards importing crude from non-Middle EastGulf (non-MEG) and the fact that U.S. strategic stock build is set to end in 2Q05, could both add some downward pressure on the VLCCmarket. The most bearish factor for the VLCCs, however, is projected fleet growth, with more than 25 VLCCs due for delivery this year and 20 in 2006, with minimal deletions expected. 

SSY says that the Atlantic markets should continue to find support from growth in the West African trade through 2005 as demand for light, sweet crude rises due to the preference for lower sulphur transport fuels at a time of tight global desulphurisation capacity and limited refinery expansion. Cargo volumes in the Black Sea could be affected by a slowdown in Russian oil production growth and a further shifting of supplies away from the Black Sea to the Baltic Sea due to expansion in the capacity of the Baltic Pipeline System.  

However, as the Baku-Ceyhan pipeline is due to come into operation mid-year, this potentially holds some more loading opportunities for Former Soviet Union (FSU) crude in the East Med for suezmax tonnage. By-passing the Bosporus should ease delays and free up tonnage, which could add some downward pressure on rates. The delivery of around 28 ships in 2005 and an additional 25 ships in 2006 will be the most significant downward factor pressing on the suezmax market this year, according to SSY. 

SSY also believes that the expansion of the Baltic Pipeline System and increased export from the Baltic Sea at the expense of the Black Sea markets could hit the aframaxes, which to some extent will be affected by the same factors as the suezmaxes. Increased exports from the Baltic could be offset somewhat by the expected decrease in North Sea cargoes. Strong crude import demand into the U.S., particularly through short-haul sources such as Mexico, will be supportive for the Caribbean trades. The decline in Indonesian production, plus the Chinese trend towards sourcing crude from longer-haul sources as VLCC cargoes, is likely to add some downward pressure on Asian aframax trades.  

Conversely, the increasing use of uncoated aframax tonnage for fuel oil transport holds some upside potential for this region. Clean markets, meanwhile, should find more support as a result of greater long-haul product trading from India and the Asia Pacific as well as the transatlantic trades. Also in the aframax segment, fleet expansion (+65 aframax in 2005, +55 in 2006 and +49 in 2007 according to Clarksons) is likely to be the major downside factor, along with a lack of older tonnage for scrapping [phase-out of 8 in the rest of 2005 (11 sold for decommissioning), phase out of 5 in 2006, phase out of 33 in 2007 according to INTERTANKO figures]. 

SSY believes that the growth in the clean product tanker markets is likely to provide more opportunities for the panamax (50,000-79,999 dwt) sector in the near to medium term. Rising volumes of clean cargo exports from India and the Middle East, mainly to the petrochemical markets of the Asia Pacific, are likely to support this sector at a time of rising tanker supply. Meanwhile, record post-Soviet exports of fuel oil from the FSU could provide more cargoes for European trades, while rising oil production from Latin America is likely to mean more trade with the United States 

There are about 60 ships totalling 38m dwt due for delivery in 2005. However, most of these tankers are coated, while the majority of the potential removals are uncoated vessels. [Phase-out of 31 totalling 1.9 m dwt rest 2005 (24 sold for decommissioning), no phase-out in 2006, phase-out of 9 in 2007 according to INTERTANKO figures]. 

Lastly with regard to the handymax sector, SSY says that the U.S. Department of Energy has projected American gasoline demand to rise by 2% in 2005 to 9.1mbd, and by 2.4% in 2006. This is likely to put some upward pressure on trans-Atlantic trades as long as U.K. Continent (UKC) cargoes are available. Meanwhile growth in the Chinese economy and the strain it will put on power generation should also buoy its product imports, especially diesel and kerosene. Expansion in refining in both India and Korea should provide more cargo employment opportunities for the handymaxes in the eastern markets. The trend for U.S. imports of jet fuel from Asia-Pacific should also underpin the Pacific market by adding to long-haul voyages. Also for handymaxes large fleet supply growth could limit the upside, with 57 newbuildings of 2.6 m dwt expected in 2005 and a further 67 tankers of 3m dwt due for delivery in 2006. Limited scrapping is anticipated due to the modern nature of the fleet with fewer older ships available for deletion. 

According to INTERTANKO figures, there are 57 tankers 5-29,999 dwt plus 69 tankers 30-49,999 dwt - altogether 3.4 m dwt - due for phase-out in 2005, plus a number of single hull tankers that should have been phased out earlier. However, in the absence of large scale demolition sales in early 2005, it is likely that a number of these vessels will remain in the fleet and possibly operate in non-petroleum trades. Some may have been upgraded to PL/SBT, which would give them up to a couple of years' extra lifetime; some may be trading between, or in, non-MARPOL signatory states; and some of the smallest ones may have been re-measured to below 5,000 dwt. 

Contact: Erik Ranheim